As argued by me many times before, the report describes Britain’s housing system “as a case of how not to do things”. Thanks to the Town and CountryPlanning Act 1946, the right to develop has been virtually nationalised and the country is ruled by NIMBYs – i.e. an “entrenched anti-development culture, where ‘greenbelts’ around the country are considered sacrosanct”. The centralisation of government finances has also led to a situation whereby local governments receive little benefit from increased population and development, but bear most of the costs, making them anti-development.

In the middle are Switzerland and Germany, whose fiscal systems are highly localised, with funding based primarily on the ability to attract population. This incentive makes both countries more amenable towards development, increasing the responsiveness of supply. Right to build laws also assist in this regard.

Then there is Texas, where land-use regulation is particularly permissive, and housing-related infrastructure is provided efficiently via its Municipal Utility District (MUD) bond financing system. These two factors combined have helped make Texas’ housing system highly responsive to changes in demand, leading to affordable housing and low price volatility (see below charts).

Given my previous interest in the Texan housing system, below I have reproduced some of the key extracts from the New Zealand Initiative report explaining the functioning of its housing system. In turn, it provides some useful policy prescriptions for how Australia could free-up supply, in order to get construction moving and provide more affordable housing options. As always, I highly recommend that you read the report for yourself.

Flying over Texas, two things stand out: space and sprawl. It is a bustling state, with record rates of economic growth, barely touched by the global financial crisis, and with one of the highest standards of living in the United States. Annual per capita income is $NZ70,000 and the cost of living is low. One of the key reasons for the growth of Texas is its low-cost housing.

The average price of a house in Austin, regularly rated one of the top five most desirable cities in the United States, is $US187,000. In Houston it is lower. Overall, the average house price to household income ratio (the so-called median multiple) has remained around three. In other words, the average home costs three times the average income. There are several reasons for this, and different cities in the state organise themselves in their own ways; however, what they have in common is a liberal land use law at the edges of cities. There is also a very clever model, becoming more widely adopted, by which new infrastructure can be funded and growth allowed.

Houston is a city with a metropolitan region (greater Houston) of about 6.1 million.89 The strict city boundary itself contains only 2.1 million people. Harris County in greater Houston alone grew by 88,000 people in the year to March 2011–12… Today, Houston is one of the economic growth stories in the United States; high-tech medical research and manufacturing is the biggest employer91; and housing is one of the key drivers of this prosperity. The high standard of living, which includes the ability to buy a house on a modest wage or salary, has been one of the hidden factors behind Texan prosperity over the past decades…

Each city in Texas is different. Some cities such as Dallas and Austin have planned development, zoning, and development attitudes and zoning rules similar to many places in New Zealand.

Houston is the only city without any zoning. Rapid growth stretches the ability of municipal authorities to pay for infrastructure. So Houston and other cities such as Austin have had to look for innovative ways to finance infrastructure. The other important factor in development in Texas in general, and Houston in particular, is that land outside the cities cannot be zoned. It also has a narrow definition and a robust defence of property rights, and a view that the market, by and large, is best placed to deliver housing outcomes. Following these principles, the key legislative development has been the invention and growth of the Municipal Utility District (MUD).

MUDs

A Municipal Utility District (MUD) is a water district set up to provide water services to a defined geographical district. It is a statutory authority with the power to tax its residents for the infrastructure and water services it provides. These services are most often water services: freshwater, wastewater and storm water management…

A MUD has taxing powers, and is run by the elected representatives of its residents who must contract out development services to a developer to manage and build. A MUD can issue bonds off the back of existing value, once some value has been created. Typically, the bonds are issued for a period of 20 to 30 years…

Since land in Texas counties cannot be zoned by law, anyone can propose to set up a new development on his or her own land, but they have to provide the infrastructure. The cities provide most infrastructure within city limits to which residents must hook up, but it is a different story outside the city. All manner of infrastructure needs to be provided in a new development: roads, footpaths, streetlights and water. However, most MUDs are only empowered to provide, and tax for, water infrastructure. In some cases this also means other amenities can be voted on by the resident owners, which are a kind of body corporate.

The process is roughly as follows: a developer or group of landowners go through the process of turning some land into a MUD as described above (note: not all MUDs end up being developed). However, before that can happen some other steps need to be taken. To qualify to be a MUD, land has to have resident owners, so the owner/developer of the land will sell sections to what is known as a ‘developer board’. The land can be sold at a peppercorn rate to get the development off the ground. The developer board will typically be a group of people with useful expertise (an engineer, a lawyer, an accountant, a banker, and so on) that the developer knows. The board is paid on a per-meeting-plus-costs basis, and must be re-elected by the residents of the MUD every two years on a rotating basis.

The resident board (at this point, it is the developer board) votes to form a MUD, creates rules for the development community, decides on what MUD tax they will charge, and contracts a developer to undertake the development. As the development grows, the board may change or stay the same depending on residents’ wishes. In some cases, developer boards stay in charge for decades; in other cases, there is a quick turnover and new residents moving into the community might take over within a short period.

The infrastructure is provided by the developer who may build a first stage, 100 homes for example. Sufficient water and a sewage plant will be built for that, with the option of increasing the capacity. The developer builds the roads, footpaths and other non-water infrastructure. These are included in the price of the house.

Once sufficient value has been created, and say 100 homes are sold, there will be enough value in the development and the future residential tax stream for the MUD to issue a tax-exempt bond to pay for the rest of the construction, which proceeds in stages. The common minimum example given is a 500-house development, with 100 new houses built at a time.

Any bond issue must be signed off by a State-appointed officer once due diligence has been undertaken to make sure that the bond is robust. An assessment is then made that the amount being raised is reasonable based on the construction work that needs to be done. The audit also considers the ability of the current and projected size of the MUD to pay off the bond in time. MUD administrations have developed over time, and one of the key attributes is the high level of trust in a MUD. The State is never expected to act as a backstop for one that has gone awry. MUDs are, in essence, local authorities with limited taxing powers empowered to service water infrastructure.

Of course infrastructure must be paid for. But instead of paying by way of a greater general tax, or the cost of the new construction being front loaded into the house, a MUD, as a statutory taxing authority is empowered to levy a tax to pay for this infrastructure. Here is one of the great advantages of the MUD. Instead of all the water infrastructure costs being loaded into the front price of the house, to be passed on at the point of occupation, a MUD tax involves low payment over time. This has the effect of keeping the price of the new house lower at the point of entry for a young couple. Specifically, by law, a MUD can charge an ad valorem tax of up to 1.5% per $100 of value per year. The amount of this tax reduces over time as the debt is retired. Some MUDs have a tax as low as 16 cents per $100 and a typical tax seems to be around 30 cents per $100 of value, a rate of 0.3% tax on the value of the property.

The tax typically begins at around $1.30–$1.40 of which perhaps $1.10 is debt, which funds the capital; the remainder is the operating cost of the utilities. Those charges are typically run with a modest surplus in mind to pay for utility upgrades, a MUD manager, servicing, repairs, and so on. Over time, if operating surpluses accrue, MUD residents usually vote for some new amenity to be built, often a swimming pool, a park development, or some other public amenity. In theory, the residents could vote to get a MUD operating a surplus to make a refund, but this rarely happens in practice.

A MUD tax is paid on top of other taxes that may be levied by the county or city…

Land-use:

The prioritisation of property rights, their absolute nature, but limited scope in Texas, affects land use. Property rights tend to cover only land; zoning in counties is against the law. Provided a development gets water approval…, it can be started wherever and whenever a person or group wishes to start one. There are environmental protections, but these are prescribed every few years and are generally known before proposals for development are filed. There are few avenues for appeals because it is expected that any areas of environmental sensitivity have already been earmarked and have gone through a separate process of protection…

The burden of providing water infrastructure is thus taken off the City/State, as is the job of working out where new developments should go and where people should live. This leaves the State to concentrate on providing public goods, or generally agreed goods and services such as highways and access to residential areas, and working how to connect them to the different parts of the City and State. All these factors substantially lower the cost of land. There is a variety of developments built in various natural environments aimed at different markets and sold at individual prices. They are held relatively stable by the ability to debt finance infrastructure through tax-free bonds. To give a sense of scale, the Texas legislature in March 2013 (it sits once every two months) enacted 17 MUDs, all of them ready to be developed and started.

This process always keeps the price of land low, with a great deal of competition in land for development and no artificial scarcity. It also keeps the purchase price of a house or section low since the expensive water infrastructure is paid for over time through the MUD tax, not in the upfront cost of a new house. Because a subdivision can be developed virtually anywhere on the fringes of a city, or further out, there is no artificially created scarcity value of land. Instead there is a competitive market in subdivisible land because no landowners have an incentive to ‘land bank’ or speculate against possible future zoning or land use decisions. The contrast between developing in Texas compared with Auckland is stark: the Metropolitan Urban Limit creates scarcities in land and Watercare provides a monopoly water service, the costs of which are charged upfront. In Texas there is no land scarcity, and each development pays for and provides its own water infrastructure, the costs for which are debt funded over time…

In New Zealand, the state (through councils) also plays the roles of planner and adjudicator, cleaving a line between competing interests and views on development. In Texas, the role of planner is largely stripped back, particularly outside the City: the State sets the rules and through various agencies, and ensures they will be followed. In most cases, the rules are relatively clear and the State of Texas/County just sees that they are enforced.

In Texas, rules on water usage and environmental protection are prescribed, and enforcement is largely a technical matter. It is generally assumed that unless there is a compelling argument for a development not to go ahead, which itself is an oddity given the commitment to local property rights, it will be given the green light. The state views itself as regulator, not stakeholder. It simply sees that the laws of the land are complied with. And if not, it helps parties comply with them in order to get their project given the necessary approval. For most applications, there is also a one fee policy: applicants pay once for the consent. If they don’t get it the first time around, they do not need to continue paying council for each subsequent application. This minimizes incentives for officials to decline an application…

Protections for property owners:

Of course there must be some way to protect private property rights that owners can buy into when they get a property, and there is. It is called a deed title and is often called a covenant in New Zealand. Each MUD has its own set of deed restrictions that prescribe how big a house can be, its features, its colour, its location on the section, and so on. These deed titles make more sense in an area like Texas where property rights are far more stringently enforced: by buying into a development with a deed title, people are buying extra protections for their property from being built out or having big trees or a pile of smashed-up cars located next door…

NIMBYs and MUDs:

Most people in the planning or construction community in Houston have never heard of NIMBYs, or if they have, they are more a theoretical concept than a day-to-day aspect of life. One theory for this is that wide open spaces in Texas tend to reduce neighbourhood anxieties; another theory is that the MUD model removes any ambiguity about who is paying for what. In countries such as New Zealand, there seems to be a latent fear (founded in evidence or not) on the part of many locals that ‘we’ are paying for ‘their’ infrastructure. The MUD model clears up any confusion on this issue. People in a MUD pay whatever local taxes they might owe plus their MUD tax for the water infrastructure. A MUD is a good way to mitigate concerns about the public cost of infrastructure.

This leads on to a larger advantage in the MUD model. Because the entire water infrastructure in any new development is paid for by residents moving in they have a great incentive to do two things: 1) keep costs as low as possible, and 2) attract businesses or large employers to set up within the MUD to help pay down its debt. Of course local governments around the world would argue exactly the same, and would be right. However, a MUD is different because it decouples the provision of core services from the other roles that local government play. The difference between a local body and a MUD is that the latter can only tax to a certain level ($1.50 per $100 of value) to pay for certain prescribed things (water infrastructure and provision). Everyone inside the MUD is a part owner of this infrastructure and has every incentive to keep the cost and price down for the customer – themselves. They also have every incentive to welcome developments that might see the price reduce as quickly as possible and stay low, such as permission for businesses to set up in the MUD. There is no question of new developments crosssubsidising other activities that might not be core to a MUD’s purposes or that are contrary to the residents’ wishes.

This means councils cannot blame murky infrastructure financing arrangements for lifting rates or taxes, and can be relieved of providing essential infrastructure services and focusing on civic services such as libraries, parks, museums and so on…

The report also provides detailed case studies of Houston and Austin, which are well worth a read.

With a bit of luck, some open-minded planners and policy makers will read this post and begin examining Texas’ innovative and successful housing system (as well as the those of Germany and Switzerland), and consider applying some of the principles to Australia’s restrictive and constipated planning and land-use regime.

Once again, I cannot recommend this report enough to anyone interested in land-use and affordable housing.

Comments

Give me a break. You write as if Australia has a shortage of the stuff and it’s just outside the city limits. Complete crap.

Tell me, is the land to the north and west of Melbourne high quality “arable farmland”, or is it unproductive shrubbery? Answer: it’s the latter. Yet most of it is off limits to development thanks to regulation. Same goes for most of the other capitals.

I always find it ironic that cities with low housing costs are accused of having “higher transport costs” when a large measure of the “transport spending” in those cities is “discretionary”.

The reason that many growth-contained cities have “lower transport costs” and indeed “lower energy costs”, is that there is so little money left after housing costs.

They probably have less spending on music lessons and orthodontry for the kids too.

There is nil basis at all to assume any inherent efficiency advantage for the growth contained cities. Their traffic congestion delays and average commute times tend to be worse than the non-growth-contained, affordable-housing cities. This tends to suggest that there is some cause other than “efficiency” for lower energy costs.

It is worth noting here that affordable housing cities have more married couples and more children. This of course means more compromises on location decisions, because of two jobs and one or more schools. Yet these cities still have less congestion delays and shorter average commute times. This suggests that there are efficiencies of free market spatial “sorting”, that are greater when land costs do not swamp location decisions and force inefficient choices.

Whether transport costs reside on the Household budget or Government budget, it doesn’t matter it is still a cost to our society. And affordable transportation is a very important consideration in affordable housing. And I keep going back to Houston’s Freeway system, it has to be seen to be believed, google maps does not do it justice. It would take 100’s of billions of dollars to replicate this today and even in spite of this massive investment in the car Houston is building a comprehensive light rail network within the inner freeway loop.

Ok lets put transportation aside and discuss Houston planning.

What sense does it make to put a 50 storey sky scraper next to a bunch of houses? Houston Uptown.

What sense does it make to build a 50 storey sky scraper and surround it with blocks of ground level car parks. Houston CBD.

I’ve seen enough of Houston to know that this idea of the “free market” in determining building and land usage is a load of BS.

Sensible and fit for purpose planning rules are required. The government doesn’t need to do this planning, but they need to be involved in the approval process. And governments do need to be involved in developing those planning rules because at the end of the day, it is the government that will be required to pick up the pieces of anything that goes wrong. Like for example the development of high density slums on the out skirts of our cities.

“yeah but building on arable land is a pretty short term thinking.”
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Just when I thought you couldn’t up the ante on the moronic drivel your already post, you go and outdo yourself once more! Hilarious. :-D…..

😀 You’re comedy gold Dam.
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You will probably get a call from Enzo to stop posting as with every post you are doing more harm than good for the spruiker cause.
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Let me get this straight, you have a property portfolio that is supposedly going gangbuster’s, and yet you feel this irresistible urge to waste the vast majority of your day posting on MB trying to convince others that the property cult is the only way to go!?!?!?! 😀 you remind me of Arnie Grape

I get the “supply and demand” aspect of this; less supply in an environment of high demand leads to price increases… massive ones. But again I believe the view here is too laser-focused on this as a primary cause.

“Wha… why!?” you ask?

We have enough homes here in Oz to fill the NEED of housing. What we do not have is so many homes as to stamp down the PRICE SPECULATION – and this is the part that I agree with in regards to the “supply and demand” argument. But in my opinion, in order to stamp down the inordinate demand we’ve seen in Oz since circa 2000 we’d need a MASSIVE OVERSUPPLY of housing.

So for me, the more pertinent question is “what’s driving and supporting the speculation?”. IMHO, this is what is causing house prices to outstrip their functional values FAR more than our inability to dump housing on-market fast enough to drop prices. In short, “speculation” is not necessarily equal to “demand”.

This other issue I have with the laser-focus is say we embark on a freewheeling open development approach… I believe we’d have to have a massive oversupply in order to stamp down the demand that is being supported by cheap money and bad federal policy. And thus would swing the pendulum too far in the opposite direction.

This too would be folly as we’d have too many homes (as many cities in the US now have) that simply sit and rot as there are not enough people to fill them. This has massive environmental impacts as well as long term down trend potential for home prices below their functional values.

“We can fill those with immigrants!” you say? Likely true… you do have me there. But it that the best idea? NOTE: I’m a dirty-dirty sepo-Australian myself 😉

It seems like opening development restrictions (while a damn fine idea in moderation) is simply another can of worms that would cause it’s own entirely predictable set of problems.

campbeln, From your post there are many things that you don’t understand.
For starters you do understand that a permanent policy of allowing development on the city fringe will ensure that prices on the city fringe will NEVER become subject to speculation. Therefore there will never be a need for a massive oversupply on the fringe as you seem so scared of.house prices to outstrip their functional values
This is not the case. High rents like $600pw in Sydney do come very close to justifying the current prices. There is a severe shortage of housing reflected in high and rising rents which then support these prices.

Yes, in real life examples of “freedom to build”, prices remain more stable and “overbuilding” is actually minimal. If there ever is any, the prices fall to “even more affordable” and the oversupply is quickly filled with newly formed households and in-migrants.

The famous Texas “bubble” of the 1990’s left minimal economic and social hangover.

A few thousand too many houses at $150,000 each, and the entire housing stock remaining at about this value, is far less damaging to an economy than a few million houses inflated in “value” to an average of half a million dollars.

The Claw & PhilBest:
“NEVER” is a strong word, given enough bad policy from on high would allow speculation. Don’t believe me? Please refer to China. I think we can all agree that building there is unrestricted, and yet there is a bubble in prices.

As to $600 rents in Sydney, true dat. But like San Francisco, there are hard borders that will make this the case due to the location of the city (so it’s kinda different there ;).

Again… I think this approach has merit, but I do not believe it would solve many of the ills. Saying that, PhilBest’s point of too many homes depressing prices somewhat being better than too few causing rocketing prices for the whole supply is indeed valid. It would likely be the lesser of two evils. I guess I just don’t like evil 😉 That and I’m not as convinced as you are of market forces overcoming extremely loose monetary policy (again, China).

The New Zealand Initiative, a group of businesspeople in effect, have contradictory philosophies. On on hand “(they) believe that our goals and values are similar – if not identical – to what most New Zealanders want to see achieved: a good education system; affordable housing ; an open economy; a free and democratic society; the protection of our natural resources and heritage; sound public finances; and a stable currency.” But they also acknowledge Smith’s view that “People of the same trade…meet together… but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Hmmm…..

“People of the same trade…meet together… but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Hmmm…..

Yes, that describes urban growth containment to a “T”.

Mason Gaffney (1964), “Containment Policies for Urban Sprawl”:

“……It is no accident that (explicit) growth containment is the most respectable and saleable kind of urban planning. It harmonises all too mellifluously with the interests of a dominant class. But from the viewpoint of social economy, of other interest groups, of the general welfare, of the region, state, and nation, and even of most urban landowners in their roles as workers and capitalists, (this) growth containment is an instrument of monopoly exploitation……”

“high-tech medical research and manufacturing is the biggest employer”

This seemed to me to be the key statement. We can’t change the housing without fundamentally changing what we are doing here. (I know there is a loop operating here) We have to restructure the economy away from Govt and ‘Service’ Industries (what a misnomer!) If you have an economy that is Retail, Govt lawyers, etc then you end up with ‘centric’ cities.
If you have an economy where employment is manufacturing then you more or less naturally end up with diverse cities that sprawl as per the observation on Texas.

The chances of this country changing its laws, work ethic, education system,financial system, culture and consumption to go back to manufacturing, as a major part of the economy, are virtually zero.

But you can’t pick and choose “what you do”, you have to “let it happen”.

An economy that chooses its urban form first and expects everything else to fall into place around that, will go bust. It won’t even become the equivalent of Hong Kong or London – it is necessary to “be” that already.

The UK without London’s global finance sector, and “with” urban growth containment, would be the Argentina of Europe by now.

A Ponzi economy will exist for a while around the growth containment racket – it is kind of self perpetuating – but it is a cancer, not an essential organ. Expect the bust to be spectacular when it comes. The longer the debt-fueled Ponzi runs, the weaker the real productive tradables sector becomes, and it is this that matters in getting out of the mess.

The key difference is that Texas cities are productive entities whereas Australian cities are little more than parasites sucking in the wealth generated by distant mines. All further analysis is immaterial, because it simply reflects the mechanics through which Texas cities achieve their net productivity objectives. Without the need to be productive Australian cities are free to pursue their self perpetuating Ponzi schemes.

I have no idea if the Australian model is sustainable or not because the answer really lies in China and India, if these countries continue to grow AND Australian mines provide the raw materials then it logically follows that Sydney RE prices can surpass even Tokyo’s absurd 1990 prices. Without the need to be productive housing prices need know no bounds.

Even that process cannot be sustained. The increased local economic costs, and the effect on the exchange rate, will have to make Australia an uneconomic source even of mined resources. In fact this effect is already noticeable.

In ref to above we can’t pick and choose but let’s get an appropriate exchange rate where we are not borrowing to fund ourselves all the time and then let it rip!
As you’d be aware my opinion is that this has now gone on so long it is irreversible. There is no way out.

Best case – MUD implimented tomorrow, house prices fall to 3 times median income within 2 years.

Best case would probably co-incide with a short sharp recession as banks and retirement funds get wiped, but economy will recover pretty quickly as genuine housing construction and employment takes off.

Higher disposable income from lower housing costs, feeds into the economy through higher consumption and economic growth. Everyone wins except the boomers, whose plush retirement funds will be smashed and instead of retiring at 60 will probably have to work well into their 70s like everyone else, oh and hopefully neg gearers will learn an important lesson.

I love to see your best case happen but it is not realistic because Australians in general lack the technical skills base to build modern globally focused businesses. In this case the recession would be very deep and prolonged (maybe 20 years)

The problem is a dearth of globally marketable skills available in Australia, and I dont mean RE speculation. China and India faced a similar problem in the early 80’s so they focused their higher education institutions on producing engineers and medical personnel. Problem was they had no industrial base so the best of their engineers and doctors left to work in the US. This brain drain continued all through the 80’s and only started to taper in the late 90’s. The engineering skills flow did not really reverse until after the dotcon bubble and 9/11 forced the US to scale back on H1B visas.

It took China over 20 years of patiently building a technical skills base and watching this human capital investment fly away on the first available jet. Things will need to get pretty bad before the Aussie public allows our pollies to fund such a wholesale engineering education plan.

BTW: as far as I know our best engineering schools turn out less qualified engineers today than they did 20 years ago, so a massive educational change is needed. It also worth mentioning that the lack of local student demand (enrollment)in the available engineering courses is the reason for the reduced course availability. (meaning today’s kids dont want to be engineers….and why would they!)

As you can see: A massive change is needed to transform Australia’s cities from a speculators paradise into externally productive work centers (manufacturing, design, medical…. whatever)

This cant happen through a short recession, when the change occurs it will be prolonged and ugly.

@CB Well put. Agree about the education system and number of engineers (as an engineer myself). The problem here is that there are too many easier ways to make a better living to be bothered to go into university and get a good technical degree.

I think you are right on the engineering graduate score, C-B. I read recently that we produced 9,600 graduates last year, but we need 13,000 a year. And that is without increasing the demand through moving further up the value chain.

PS, my son finished his engineering course at ANU last year. Most of the students doing engineering there are Chinese.

Unfortunately the value of a University education in Australia has been greatly diluted due to our politicians seeking to commodities education.

I will never forget enrolling in a post graduate diploma several years ago, some 15 years after I finished my first degree and being required to submit a joint essay/workpaper with contributions from several other students – unfortunately we had one student from some south east asian nation whose entire essay was written in text speak… as in

“M8 pls C my respns 2 ur total piece of crap! Thx 4 wasting my time”

…. even now I shudder at trying to read, let alone type out that garbage. The idiot was passed on that subject, demeaning for everyone involved.

While I agree with much of this in principle, there are aspects I can’t quite get away from.

The Adelaide hills contain some of the best arable land in the country in very close proximity to the city. This leads to a strong fresh food culture in the city and contributes to it’s identity. The thought of this part of the world being ripped up for development concerns me greatly. Sure, the land might be more profitable being developed and sold off, but what are the broader consequences to the city? How do you recover land for agricultural purposes once it has been developed land price makes it truly uneconomical?

This kind of libertarianism relies on people being able to accurately measure the value of things in concepts other than dollars and over time scales longer than a few years.

Just passed through Switzerland, now in the US. I betchya new Swiss and German developments are vastly more sustainable, walkable and pleasant to be in than Texas developments.

To go directly from a Swiss city to an American city is an eye opener. The Swiss must shake their head in disbelief when they travel. Everywhere is so dirty and chaotic compared to their impossibly perfect little country.

“A few years ago an Italian friend of mine travelled by train from Boston to Providence…She arrived looking astonished. “It’s so ugly!”

…How can it be, visitors must wonder. How can the richest country in the world look like this?

Oddly enough, it may not be a coincidence. Americans are good at some things and bad at others. We’re good at making movies and software, and bad at making cars and cities. And I think we may be good at what we’re good at for the same reason we’re bad at what we’re bad at. We’re impatient.”

I think his impatient argument also explains a lot about the growth of debt, debt is a way to pay more to have something now rather than pay less later, of course with debt rates at below inflation it suddenly makes everyone believe its best to buy it now for less than to buy it later for more, when that increases asset prices people become more convinced of this wisdom and demand for debt becomes a runaway self sustaining reaction until all capacity is consumed.

It s ugly because everything they do there ( and we are following that path) is ruled by pseudo economical terms.

pretty much nothing great has ever been done while applying “capitalism/liberalism” principals (strict ROI/IRR).It s not even minimalist it s shortsighted.that s what happen when you have economist/MBA around.

Switzerland is beautiful. The other day I went on google maps and ‘street viewed’ random areas to see what Houston was like. It is huge and all the residential streets I saw looked very similar. Ok the houses looked nice but the streets were very bland, it wasn’t a place I would want to live. Driving through most US towns they all look the same anyway. Europe (and any other old civilsations) have a massive advantage in that towns and settlements have grown over centuries, into enjoyable places to live which somehow are on a sympathetic scale. Somehow modern settlements haven’t managed to achieve the same (although the Adelaide Hills are quite pleasant, infinately nicer than the urban sprawl of Adelaide). Having lived in many different places and different size towns and cities I reckon the best setup is a small town (10-50k population) which has its own facilities and identity but importantly has fields, farmland, forests and open spaces surrounding it, giving a sense of identity and separateness from other towns and proximity to the natural countryside (not a planned city park). Urban sprawl (a la Houston) may be good for the pocket but it is not good for the soul.

Aesthetic taste is an appalling basis on which to practice “exclusionary” planning. This is the worst kind of elitism.

Someone wants arty-farty or quaint and touristy surroundings, they can pay to live somewhere that has them – if they can afford it.

Some people in Switzerland might beg to differ with you about having no choice other than sharing a centuries old log home with their parents.

American tastes are different, that is obvious. That is no reason to argue that they should have been deprived of choices and made to live in heavily planned replicas of the Old World, at old world prices. In fact if there was genuine demand for such amenities, developers would be building “new towns” with those amenities. There is nothing stopping them.

If there is massive pent up demand for “superior” Euro-style planned communities, rip into it yourself – start a business doing it.

There are locations in the USA that do provide something like “olde worlde” amenity – rural towns are popular with some people, and it does not cost an arm and a leg to make this choice.

There are also locations where there was higher density living 100 years ago, and these largely became slums. “Renewal” does sometimes involve preserving the original architecture; sometimes it does not.

What appalls the aesthetes is the smorgasbord of CHOICES.

By the way, there would be clashes of tastes even between different Europeans – the French and the Germans and the Swiss and the Italians and the East Europeans all prefer different design. And before you sneer at “capitalism”, take a look at Soviet architecture. Individual “capitalists” have left magnificent architectural legacies.

Aesthetic taste being imposed on all is one of the many reasons I’d never buy anything with a covenant…developers want to ‘master plan’ their communities and ensure they look like the artists impression brochure forever…and you give them the legal right to do so!

Now that wouldn’t be so bad if one had choice to build on another piece of land of your choosing…(competition would mean there would be plenty of choice to not live somewhere like that) but no, the council has only designated the master planned prisons as the places you are allowed to build!

Because under the Texan model, you can build a replica of a Swiss village if you want to and can afford it. Under the Swiss model, you can’t build what you want. For that matter, under the Swiss model you can’t even choose to dry your washing on Sunday. It’s illegal. See item 3 on http://www.newlyswissed.com/?p=162 (and that’s not even the weirdest one).

It suits the Swiss but probably wouldn’t suit Australians, who generally prefer a little more freedom.

Yes, well I was originally told that one by a colleague who spent several years there as a consultant. He didn’t mention whether it was a local law or not. But it is clearly the sort of thing that appeals to the Swiss. They seem very keen on order.

My point was that we should choose the best model for us. If you think that is the Swiss model, fair enough.

On the contestability of the provision of land, I wholeheartedly agree. Look, we can have green wedges but constraining lot production as Melbourne does with Precinct Structure Plans inflates the cost of land everywhere.

I differ, UE, on MUD financing. Better – much better – to use Land Value Tax to capture part of the uplift in land values wherever they occur. If government builds infrastructure (East-West road for example) that does not improve amenity or efficiency then the waste is apparent to all. MUD finances only the utilities of a precinct. The needs of a new subdivision (sorry, masterplanned community) are much broader than that.

Guess why land taxes never get considered, but urban growth containment is easy to get enacted?

Who benefits?

It is inconsistent to be in favour of both land taxes and urban growth containment. Land taxes won’t overcome the disbenefits of urban growth containment. It will actually contain urban growth anyway without needing regulatory boundaries.

Thanks DC. Australia will never become like Texas, since our government are too greedy and relies on the taxes and other land/property linked income. They love the ongoing price increase of land and calculate their forward financial planning based on that ongoing increase. And when things are flat-lined, the RBA gets in and keeps reducing the interest rate. But we wonder for how long can they keep doing this, as lower interest rates are economically negative especially for the long term. The government is trying its hardest to keep this Ponzi situation going as long as it can!

The idea behind ‘urban growth boundary’ is to increase density, which makes it cheaper to provide infrastructure and services. What will work in Sydney are 50 square meter apartments near the city for < $200K. Instead, what we get is 100 square meter apartments selling at over 1 million. The 'model' is base on a type of housing that developers won't build because people don't want to live in them.

While we keep hearing about the great things happening in Texas, we must also put one thing into perspective : population. From 2011 to 2012, the population of Houston, Texas, grew by 35k. During the same period, Sydney's population grew by 62K, and Melbourne by 78K!! As long as this kind of population growth continues in the city, a miserable existence is the guaranteed outcome.

I’m just using what is available on the web. Are you sure it increased by 1 million in Houston, and not the whole Texas? The population in 2000, according to google’s chart, is 1.98 mil. In 2010 it’s 2.145mil. In contrast, Sydney went from around 4.mil to 4.5mil in the same period.

releasing new land on city fringes could help in cities like Brisbane, Gold Coast, …
But it will do almost nothing to lower house prices in Sydney or Melbourne. Land on city fringes will not provide additional supply of desirable land in these cities. People do not want to live on city fringes and that’s why now they are ready to pay twice as much for a half the size unit close to city instead of large house 40km away.

You are constantly ignoring something called “culture” that is different here – this is not Texas people like living close city amenities and close to other people.

Builder-dash … it is worth bearing in mind that at some stage, all parts of our cities were fringe.

It is better to think of cities as a Community of Villages … not in unipolar terms.

You may like to read my hyperlinked article on this thread “Focus on restoring housing affordability”.

I don’t particularly care if people wish to live in wig-wams, igloos, central high-rise, suburban detached, fringe, lifestyle blocks or outlying towns … just provided they are paying True Market Value for however they wish to live.

As hopefully the article makes clear, the focus must be on (a) eliminating artificial zonal scarcity values and (b) financing infrastructure properly along the lines of the Texas MUDs model, for what should be elementary reasons of economic efficiency and inter-generational equity.

It is simply a matter of just “following the numbers” to ascertain the problems and solutions. They speak for themselves.

our cities are not Community of Villages no matter how you think about that. They are centralized cities where most of social, cultural and economical activities are happening in small areas (not necessarily only one area – CBD, but even if all areas combined still very small one)

Living culture in most of our cities is not like the Texas one. People still prefer to live close to CBD or other “central” area even if that means paying more for less (just check rental vacancy rates and empty home rates).

Desirable urban land is natural monopoly because it is limited. By increasing supply of undesirable area you will not increase supply of what people want – this is especially true in Australia where infrastructure is still at post WWII levels.

The only remote way of improving supply of desirable land by releasing new land on city fringes is to improve infrastructure first. It will not work the other way around. For example, if we improve shameful train services to Central coast or other fringe areas, and enable people to commute in 45 minutes from areas 100km away to any other part of the city, new land released in these areas would become desirable and will push price (via opportunity cost mechanisms) down everywhere.

The supplies of land brought into the urban economy by rail based development is piddly and does little to reduce economic land rent.

Freedom to develop on the basis of automobile access, brings massive supplies in and lowers economic land rent.

This has been accepted urban economic theory since Robert Murray Haig’s 1926 “Towards an Understanding of the Metropolis”.

Also, centralisation of desirable amenities, by definition means that access to them will be rationed all the more severely by “ability to pay”. There is no reason that the amenities of “the CBD” cannot be dispersed into multiple such locations. This is actually more efficient in most cities most of the time.

A major central CBD like Manhattan will evolve through market operation if it is going to happen. Planned and enforced centralisation is just an economic straightjacket. One particularly ridiculous outcome can be seen in the UK, where CBD rents are higher in virtually all their cities, than Manhattan. (Refer Cheshire and Hilber: “The Political Economy of Market Revenge: the Case of Office Rents”). You can “plan” Manhattan PRICES into existence, but that will be an OBSTACLE to anything at all of economic value occurring. Of course the rentier class is laughing all the way to the bank; this does not qualify as “economically valuable”.

It might be interesting to enquire about your interests in the value of centrally located land.

it is the fact that new homes built on city fringes are struggling to find buyers (there are more of them than potential buyers) while at the same time twice the expensive and half the size units close to city get sold before they are even build.

You are misleading when saying that people support regulation, because it’s only half true. Supporting regulation on one issue (new land release) doesn’t mean supporting all development related regulation.

I support regulation that limits waste of agricultural land on city fringes (because it is not needed to provide cheap housing for everyone and could be used for batter purposes), but at the same time I’m against the regulation that prevents redevelopment of already used low residential inner city suburbs.

I agree that we can help solve the housing problem from supply side (that is only part of the problem) by increasing supply but not at city fringes where very little people want to live. Instead we should remove regulation and increase supply in areas where people have desire to live.

I say it is insane to choke off growth at the fringe and hence make all housing unaffordable, on the assumption that “growth will be accommodated by intensification”, when no process has even been devised to make sure the intensification can happen.

The US southerners and heartlanders actually have a heck of a lot more common sense, because they understand that if they don’t want intensification in their leafy central suburbs, they need to NOT elect “growth containment” politicians.

I say if voters do elect growth containment politicians, then intensification should be rammed through by powers of compulsory acquisition and total suspension of NIMBY rights.

Then let the next election sort out whether the people still want growth containment.

There should be a federal law that growth containment policies are only allowed in tandem with total suspension of NIMBY rights against intensification; and intensification permission processes should be ultra-fast-track, “rubber stamped”.

Can we agree on this?

Like I say; good luck with the survival of this past the next local election.

releasing new land on city fringes could help in cities like Brisbane, Gold Coast, …
But it will do almost nothing to lower house prices in Sydney or Melbourne. Land on city fringes will not provide additional supply of desirable land in these cities. People do not want to live on city fringes

Very damaging half-truths there.
The truth is that new land on city fringes would completely solve the housing shortage in small cities like Hobart and Darwin but would only be a partial solution on the huge cities like Sydney or Melbourne.
The truth is that some people do want to live on cheap city fringe land and would like a large block at a fair price. A good example would be a truck driver who requires a large parking area. Another example would be the thousands of tradesmen who each service only a small part of the city.
Abundant cheap fringe land translates into more abundant and cheaper central land through two mechanisms:
1) Some people are willing and able to move outward
2) Those willing/forced to pay a premium to live centrally pay this premium on top of a lower fringe price.

I know I’m casting pearls before swine here, but may I just point out two things.

First (as discussed just last week but comprehensively ignored) an MUD is simply a primitive form of Coasian Polity Market.

Think outside the square for a moment (Yes, I know I’m just joking) and consider what would happen if that concept were applied to its fullest extent.

Secondly, this article is theological in the sense that it works backwards: it begins with its conclusion and then casts about looking for premises from which it may arrive at that conclusion “logically”. It assumes that the objective of policy is a certain outcomes (e.g. affordability) and excludes from the analysis any other preferences that might bear on the issue.

Think outside the square for a moment (Yes, I know I’m just joking) and ask how the different preferences may be weighed against one another.

The only case study in which the People have full control to express their preferences is the Swiss example. (Strictly speaking, it is the only policy in which the preferences have been aggregated using an aggregation device which itself is directly or recursively chosen from an initial non-privileging device.)

It is noteworthy that the freely expressed aggregate preference of the Swiss is not just localism. It is also a policy of containment. Just last year they of voted to limit second homes in order to maintain the ambience of their environment.

Now, the classic paternalist response to this is to say that the “stupid stinking masses” are too ignorant to be allowed to vote on such things. They must leave important decisions to wise theologians – sorry, economists – who’ll do the necessary calculations and tell them what they “ought” to prefer.

Perhaps these theologians do have a Monopoly on Wisdom, in which case we would be wise to submit to their dictatorship. But before doing so might we not ask to see (in John Locke’s famous expression) their “Charter from Heaven” by which they were granted this monopoly??

We need to recognise that one of the things about Anglo Western “rule of law” is that it protects the weak minority.

It is all very well to say “not in my backyard”, AND “not anywhere else either”.

A minority of people still need somewhere affordable to live.

The best “Constitutions” are the ones that prevent decadence from destroying the civilisation itself. One of the pillars of conservatism, is “doing the right thing by the next generation”.

Allowing housing development USED to be understood to be part of this process. A good set of constitutional rights concerning property and development rights would prevent this decline in morality and wisdom, from doing the damage it does.

I’m having bad enough day as it is. So please do not inflict this rhetorical nonsense on me.

When analysed critically, “protection of minorities” is rhetorical gobbledegook. I refer to the discussion of Coasian Symmetry.

Everyone is a minority! In fact, everyone is a member of an infinite number of minorities.

To take the simplest example, people under 16 years of age are a minority of young people. People 51 and over are in a minority of older people. People aged in between are in a minority of those in between.

Which minorities are to be proected?? Any answer to that will be an expression of preference. That gives rise to the question of how to aggregate preferences.

The arguments:

The best “Constitutions” and

A good set of constitutional rights

are expressions of individual preference concerning preference aggregation. They invite the obvious response: “By what means are those preferences to be aggregated with the conflicting preference of other people concerning aggregation devices?”

(There is also a semantic fallacy concerning the use of the word “right” but I have to go out shortly and there isn’t time to discuss that.)

Any aggregation device may “privilege” some preferences over others (i.e the aggregate vector of rank-order preferences may not be invariant to an arbitrary exchange of identities, and there exists at least one individual who – for the purposes of aggregation – prefers the identity of another individual).

That in turn gives rise to an infinite recursion relation concerning the identification of a priori privileged individuals (i.e. any attempt to identify a priori privileged individuals resolves either to a logical fallacy or to another expression of preference).

The only solution to the infinite recursion relation (i.e. the “eigenfunction” solution) is an initial aggregation which privileges no preferences. In lay terms, this is the only solution which “does not require the doing of something that is logically imposible to do” (i.e identifying the a priori privileged individuals). [For those of a mathematical bent, there is an analogy between this and the Legendre polynomials as the eigenfunction solutions of infinitely recursive Legendre series!]

It may further be shown that a non-privileging device must have the characteristic on indefinite-pass initiative-and-voting system.

One of the pillars of conservatism, is “doing the right thing by the next generation”.

Back again!!

This also is rhetorical gobbledegook: “the right thing” is clearly a matter of individual preference.

Urban containment was – and still is – promoted on precisely these grounds: to prevent the sprawl that (in the eyes of some) would blight the lives of future generations.

One might or might not agree with that sentiment. What is incontrovertible, however, is that neither this sentiment nor its opposite is self-evidently correct. They are matters of individual preference.

To argue in terms of “doing the right thing by the next generation” – as if one had a Monopoly on Wisdom in determining “the right thing” – is theological nonsense which insults the intelligence of readers.

“….Of all the attitudes that come from people who identify as conservatives, “doing the right thing by the next generation” is not one I can say I’ve seen very often. Or at all. Conservatives are all about “what’s in it for me”, “how do I give up as little to others as possible” and “how soon can I have it”…..”

Edmund Burke and Adam Smith would have had a bit to say about that kind of people, but “conservative” would not be a pejorative term they would have used of them. Conservatism and self-sacrifice went hand in hand, what do you think the early colonials were? Bleedin’-heart Fabians?

Going by your assessment, we are suffering from a rise in “conservatism” now. Funny, I kind of thought the Boomers were the free-love, peacenik, self-gratification generation and the previous lot – the ones who built suburbs of affordable houses for the boomers, and fought in WW2 – were the conservatives.

Was it the nascent feminist, gay rights, peacenik, bleeding heart liberals who wanted to “do right by the next generation” and build affordable homes for young households through the 60’s and 70’s? Give me a BREAK. These people were probably among the first to lie down in front of the bulldozers that were breaking the turf on which affordable houses were being built for their own generation.

I certainly recognise those traits, “what’s in it for me”, “how do I give up as little to others as possible” and “how soon can I have it” as part of the current problem but I suggest the generation in which they are extant are not exactly the pinnacle of a long tradition of “conservatism”.

Going by your assessment, we are suffering from a rise in “conservatism” now.
Now ? We’ve been suffering it for decades.

Just to be clear, you think it was the “conservatives” who were responsible for things like Keynesian economics, universal healthcare, free education, increasing women’s rights, a generous welfare state and extensive workers rights that made the post-war period up until the late ’70s one of great prosperity and growing equality ?

I think you’re using a definition of “conservatism” that few people would recognise, now _or_ then. I’m not quite sure centuries-old applications of “conservative” should be considered valid (or even knowable) today.

Thank you for a detailed explanation of the Texas MUD model. Do note, however, that the model requires a seasoned market in tradable debt instruments issued by local authorities, what the Yanks called “municipal bonds”. In the USA, the interest on muni bonds is usually exempt from income tax, which historically created a demand for munis among high income individuals. The USA has many small investment banks that cater to local authorities wishing to issue munis.

New houses are unusually cheap in Texas. A major factor here is a fact about the Texas labour market that many Australasians would deem unpalatable. A lot of construction labour in Texas consists of nonunion Latinos, many of them undocumented and paid in cash by the day. Their employers do not contribute to social insurances, and so these workers cannot collect unemployment, the equivalent of ACC, and Social Security – the American state pension and sickness benefit.

New houses are unusually cheap in Texas. A major factor here is a fact about the Texas labour market that many Australasians would deem unpalatable. A lot of construction labour in Texas consists of nonunion Latinos, many of them undocumented and paid in cash by the day. Their employers do not contribute to social insurances, and so these workers cannot collect unemployment, the equivalent of ACC, and Social Security – the American state pension and sickness benefit.
The massive increase in Australian property prices has not been due to increased construction costs, but increased land costs.

If you doubled the build component of a Texas house price, it would still be relatively cheap.

Hugh Pavletich wrote: “…the focus must be on (a) eliminating artificial zonal scarcity values and (b) financing infrastructure properly along the lines of the Texas MUDs model, for what should be elementary reasons of economic efficiency and inter-generational equity.”

(a) is absolutely true. The main reason why urban housing in Australasia is very dear, is the artificial scarcity of land that can be subdivided and built on. This scarcity is regrettable but understandable in the UK, and an absurdity in Australasia.

(b) Agreed, because it is cheaper for a local authority to borrow the cost of water, sewerage, roading, and footpaths, than for the cost to be apportioned amongst all section buyers, who then have to gross up their mortgage amounts accordingly.

builder-dash says:it is the fact that new homes built on city fringes are struggling to find buyers

What nonsense. Year after year in Sydney houses are built on the city fringe on tiny blocks of land and year after year they sell for higher and higher prices.

Not only is this statement nonsense, but most of what builder-dash has posted is nonsense. He posts that people don’t want to live on the fringe. Then he argues that it should be banned. Why ban something that all people don’t want to do anyway?

Yeah, I pointed that out, and Stephen Morris responded with a whole lot of gobbledegook about how prisoners dilemmas etc meant that people really, really don’t want to live on the fringe; and how it is invalid to expect a minority of non-home-owners to have any protection under the “rule of law”.

Yeah, I pointed that out, and Stephen Morris responded with a whole lot of gobbledegook about how prisoners dilemmas etc meant that people really, really don’t want to live on the fringe; and how it is invalid to expect a minority of non-home-owners to have any protection under the “rule of law”.

I think that is what is know as a “straw man” argument, combined with a not insubstantial dose of ad hominem.

Let’s consider the claim:

prisoners dilemmas etc meant that people really, really don’t want to live on the fringe

I made no such claim. I merely pointed out that the expression “people don’t want” is ambiguous in the absence of a precise desciption of the scenario(s) under which the “wanting” occurs. Under conditions of Prionsers’ Dilemma, individuals’ preferences change depending upon whether they can coordinate their preferences with other Players.

Moreover, the entire discussion excludes altogether different options. The entire discussion is couched in terms of a dichotomy between:

a) densification of existing metropolises;

vs

b) expansion of existing metropolises.

This assumes that urban settlement in Australia continues to be in and around the existing metropolises!! It fails to address the question (that I have raised dozens of times, but which has been ignored) of why Australia’s settlement follows this pattern and what might be done to remedy it.

If one were to think outside the square (Yes, I know I’m only joking) one might ask why other centres in Australia have never developed, and whether the optimal solution is to promote their development so as to avoid the false dichotomy.

Now let’s consider:

. . . it is invalid to expect a minority of non-home-owners to have any protection under the “rule of law”.

Once again, I manifestly made no such claim.

What I did say was this:

“Urban containment was – and still is – promoted on precisely these grounds: to prevent the sprawl that (in the eyes of some) would blight the lives of future generations.

“One might or might not agree with that sentiment. What is incontrovertible, however, is that neither this sentiment nor its opposite is self-evidently correct. They are matters of individual preference.

“To argue in terms of “doing the right thing by the next generation” – as if one had a Monopoly on Wisdom in determining “the right thing” – is theological nonsense which insults the intelligence of readers.

I am indifferent to issues in this debate. If a reasonable (i.e. reasonable as described earlier) aggregation of preferences decides one way or the other, then who am I to disagree? I certainly have no Monopoly on Wisdom.

If the Swiss, voting in a referendum, decide upon a policy of containment (such as the restrictions on building second homes) is that “invalid” because it conflicts with the preferences of PhilBest??

If the criterion for judging validity of any policy were the approval of PhilBest, then clearly the only valid form of government would be a “PhilBest-ocracy”.

But where is the “Charter from Heaven” to institute this new regime?

We all have policy preferences. These debates are useful if they help to inform those preferences. Some of the arguments and statistics cited by PhilBest have been very enlightening in this regard. They have certainly made me question my pre-conceptions.

“But laddie, ye cannae make an ought from an is” (as David Hume might have said).

The balance between affordability and maintenance of ambience is a subjective one. Whatever “is” arguments are brought to bear, they can never prove the case conclusively one way or the other.